CV wrote:According to Vanguard's portfolio asset allocation tool, a 60/40 AA has had (in the past, and I know that doesn't mean much going forward) an average return of 8.7%, and a 40/60 AA has had an average return of 7.8% (50/50 was 8.3%.)
So am I thinking correctly that when it comes to whether one has 5% in REITs or not, or 5% in SCV or not, within in a 60/40 portfolio, the impact on returns will be minimal. If the difference between 60/40 and 40/60 is "only" 0.9%, then it probably won't matter much what kind of tilts you might have within a 60/40 AA?
0.9% is a small difference? Please use the rule of 72 . . .
at 7.8% money doubles every 9.23 years
at 8.7% money doubles every 8.27 years
I don't believe in tilting because the only thing one needs to determine is what kind of annualized yearly expected return you want and just use low cost fund(s) that will hopefully in the long term provide those returns. If you can afford to wait for money to double every 10 years, use a 40/60 allocation. If you need money to double at a faster clip, choose a 60/40. However, going forward, those average yearly returns might be misleading (don't use the past to project into the future - past returns might not be indicative of future results).